Wealthy Growing Pessimistic About Hedge Funds

Hedge funds promising dazzling performance are gradually falling out of favor among wealthy investors who are increasingly wary of these unregulated investments, The Wall Street Journal reports.

A new study sampling investors who have at least $25 million to invest shows growing skepticism toward risks incurred by hedge funds that often use aggressive market positions on global equities and currencies as leverage to increase performance figures.

The study, a collaboration between Citigroup Private Bank and McKinsey & Co., comes at a time when the burgeoning global hedge fund market is approaching $1 trillion but performance figures are fizzling. Alternative investment portfolio managers' worries are also being compounded by calls for added regulatory oversight and increased fee disclosure.

If the study is a correct barometer of consumer sentiment, hedge funds may experience widespread defections from wealthy investors if performance figures continue to flounder. The most affluent investors say they will leave their money in hedge funds if the market remains stable, but other studies suggest the recent surge of assets flowing into hedge funds began to slow late last year.

Hedge fund inflows in the third quarter of 2004 slowed to $25.1 billon from $43.3 billion in the second quarter, according to Tremont Capital Management.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.